A Guide to Buying a Fixer-Upper

Just about anytime is a good time to buy a fixer-upper, especially if you acquire the property for less than everything else around it. Unlike other residential properties, fixer-upper prices aren't so contingent on the temperature of the local real estate market—be it hot, cold, or neutral. However, what happens after the purchase can be a nightmare or a profitable whopper of a deal. The secret to making it a success lies in getting the place checked out by a host of specialized inspectors, learning how to evaluate the repairs, and choosing the right property in the first place.

The Ideal Fixer-Upper

The perfect fixer-upper is the home that everybody will want in the future but that nobody wants right now. Most homebuyers, especially first-timers, demand a home in pristine condition, a turnkey property that's ready for occupancy. The irony is that many imperfections that turn people off—peeling paint, worn carpets, or dated fixtures—are easily correctable. Yet because they're tough to see past, a home suffering from them often languishes on the market.

Remember, if you make a purchase offer for a fixer-upper at the right price, you start making money the day you close. And that's even before you consider the potential for big resale profit. The time to think about selling is the day that you buy, even if you have no immediate plans to move.

Location and Layout

Not all fixer-uppers have potential. Whether a particular ugly duckling can turn into a swan depends on several matters.

The first is location, location, location, as the real estate saying goes.Don't buy a fixer-upper situated on a busy intersection, next to a school, or across the street from an entrance to a landfill—in other words, the sort of undesirable locale that sinks even houses in tip-top shape. Do seek out fixers in desirable or up-and-coming neighborhoods. Examine the surrounding homes and how they are maintained. Do they look well-cared-for and mostly owner-occupied?

Next, focus on the home's configuration.The best type of fixer-upper to buy is one that will appeal to the largest pool of buyers: a three-bedroom with more than one bath. Of course, say a two-bedroom home can be profitable, especially if that's the dominant size of homes in the neighborhood, but a three-bedroom house is better. If three bedrooms are better, four might be better yet: Three-bedroom buyers often will trade up to a four.

The layout should flow. If the home is chopped up with a bad layout, realize that it can be expensive or impractical to move walls. Bedrooms at opposite ends of the home will turn off buyers with young children, as will a two-story with the master bedroom upstairs and all the other bedrooms downstairs. Kitchens with more than one entrance are desirable. Avoid places whose dining rooms serve as the central focal point of the home.

Evaluating Condition

Obviously, the fixer-upper's going to be in tricky condition, but some conditions are worse than others. You need to separate the cosmetic problems from more fundamental ones.

Inspections for Fixer-Upper Homes

In any real estate transaction, always get a home inspection by a credentialed home inspector before committing to complete the sale. There are many types of home inspections that you may want to consider before buying a fixer-upper. Consider these the cost of getting a good deal:

Roof certifications. If the seller hasn't already provided evidence as to the age and condition of the roof, obtaining a roof certification at the seller's expense is good business practice.

Home warranty. Not all sellers will pay for a home warranty, but many view it as insurance against those late-night phone calls when things break after closing.

Not all fixer-uppers require equal fixing—and what needs to be fixed is somewhat subjective. A major rehab for one homebuyer is a walk in the park for another. Consider your expertise, your finances, and to what extent you want to tackle a home that requires serious renovation to make it habitable.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.